Political uncertainty in Europe boosts US dollar

The US dollar rallied against the other major currencies on Friday, lifted by news that Hurricane Rita had lost some force and by political uncertainty in Germany and Italy that weighed on the euro.

The European currency fell to US$1.2041 at 9pm GMT from US$1.2152 late on Thursday in New York. The dollar firmed to ¥112.48 yen from ¥111.70 on Thursday.

The dollar gained strength after Hurricane Rita was downgraded to a category three storm on Thursday from a category five, putting the spotlight back on Tuesday's rate hike by the US Federal Reserve to 3.75 percent.

The central bank's Federal Open Market Committee (FOMC) said current rates remained "accommodative" and suggested again that rates could be raised at a "measured" pace.

Bank of Tokyo-Mitsubishi analyst Derek Halpenny said: "As we suspected, the dollar weakness related to Hurricane Rita was always going to be temporary with the real story of the week the notable hawkish tone of the FOMC statement released on Tuesday."

In Europe, a political stalemate persisted in Germany after the general elections of last Sunday, raising fears that economic-reform efforts will stall in Europe's biggest economy.

In Italy, the ruling right-wing coalition of Prime Minister Silvio Berlusconi was weakened by the resignation of Economy Minister Domenico Siniscalco, who stepped down on Thursday ostensibly over controversy surrounding the governor of the Bank of Italy.

The change came as ministers bickered over budget plans for next year, amid fears of a deterioration in Italy's public finances.

In late New York trade, the US dollar stood at 1.2920 Swiss francs from SF1.2783 on Thursday.